Ican 2022 Financial Reporting Question 3

Daddy PLC is a first-tier entity quoted on the Nigeria Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following: (i) Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC. (ii) Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC; and (iii) A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020. At the date of acquisition, the market price of Daddy PLC’s shares was 75k each. The cost incurred by banks when a fixed rate loan is paid out early, is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts. The statements of financial position of the two (2) companies as at December 31, 2020 are presented below: Daddy PLC Mummy PLC Assets N'billion N'billion Non-current assets: Property, plant and equipment (PPE) 650 350 Investments 160 0 Intangible assets 0 40 810 390 Current assets: Inventories 100 25 Trade receivables 190 70 Bank 0 35 290 130 Total assets 1,100 520 Equity and liabilities: Ordinary shares at 25 kobo each 350 200 Retained earnings 1/1/2020 220 120 Retained earnings 31/12/2020 100 50 670 370 Non-current liabilities: 12% Loan notes 160 40 Current liabilities: Trade payables 150 60 Other accrued expenses 40 20 Current taxation 50 30 Bank 30 0 270 110 Total equity and liabilities 1,100 520 Additional information: (i) As at the date of acquisition, the carrying amount of the net assets of Mummy PLC was equal to their fair value except for an item of property, which had a fair value of N50 billion in excess of its carrying amount with additional depreciation of N5 billion in the post-acquisition period to March 31, 2020. This has not been reflected in Mummy’s PLC statement of financial position. (ii) The intangible asset was a television programme designed to promote the business activities of Mummy PLC. However, as a result of new government legislation on security matters on banditry and criminalities, such television programmes have now been pronounced illegal in the country. The appropriate government security agency advised the company to immediately stop the television programme and N12 billion compensation is to be received from the Television Authority. As a result of the new legislation, the governing board of Daddy PLC was of the opinion that goodwill on consolidation has been severely impaired by N30 billion. (iii) It is the group’s policy to value non-controlling interest at full fair value. The fair value of non-controlling interests as at the date of acquisition was N100 billion. (iv) Mummy PLC sold goods worth N20 billion to Daddy PLC during the post-acquisition period, N5 billion of these goods were included in the inventory of Daddy PLC as at December 31, 2020. Mummy PLC made a profit of N8 billion on the sales. (v) Mummy PLC trade payables of N9 billion did not agree with Daddy PLC’s trade receivables as a result of cash in transit of N5 billion.